Updated October 29, 2026, 2:19 p.m. ET: Adds ServiceNow's headcount figures, the Armis share of the cRPO forecast and the shares' fall during the October 29 session.
ServiceNow (NYSE: NOW) reported subscription revenue of $3,988 million for the third quarter of 2026, which ended September 30, up 21% from a year earlier and above the top of its own forecast. The company also forecast that current remaining performance obligations (cRPO), the contracted revenue it expects to recognize over the next 12 months, would grow 18.5% in the fourth quarter, the slowest rate in at least three years of its quarterly reports.
The shares fell 18% in after-hours trading on October 28, SiliconANGLE reported. On October 29 they slid 23% and were set for their biggest one-day drop on record, Reuters reported, as a third-quarter profit miss overshadowed a raised full-year outlook. Management said on the call that the slowdown came from the timing of renewals and from deals that count toward revenue but not toward cRPO.
What beat the forecast
All three growth and profit measures ServiceNow forecasts each quarter came in above the guidance it gave on July 22. Subscription revenue was $8 million above the top of its range and grew 20.5% in constant currency, against 20% guided. ServiceNow's cRPO grew 21% in constant currency, against 20%, and the non-GAAP operating margin was 32.5%, against 31%.
Remaining performance obligations, the whole contracted backlog, rose 22% to $29.7 billion. Gina Mastantuono, ServiceNow's president and chief financial officer, said on the call that AI net new annual contract value (ACV) grew 65% from a year earlier, according to a transcript published by The Motley Fool. The company raised its year-end target for AI ACV to $1.7 billion, from $1.5 billion in May and $1 billion at the start of the year.
Third quarter | 2026 | 2025 | Change |
|---|---|---|---|
Subscription revenue ($M) | 3,988 | 3,299 | +21% |
Total revenue ($M) | 4,106 | 3,407 | +20.5% |
cRPO ($B) | 13.65 | 11.35 | +20.5% |
GAAP operating margin | 9.5% | 17% | -7.5 points |
Non-GAAP operating margin | 32.5% | 33.5% | -1 point |
GAAP diluted EPS | $0.27 | $0.48 | -44% |
Non-GAAP diluted EPS | $1.00 | $0.95 | +5% |
Free cash flow, non-GAAP ($M) | 822 | 592 | +39% |
Source: ServiceNow's third-quarter release. Growth in revenue and cRPO as the company states it; EPS and free cash flow changes are SaasBuzz calculations.
Why the shares fell
The fourth-quarter cRPO forecast breaks a long run. In each of the eight quarters to September, constant-currency cRPO growth was between 20.5% and 22%. The guidance of 18.5%, the same in reported terms and in constant currency, is 2.5 points below the third quarter's constant-currency 21% and 2 points below its reported 20.5%, while the subscription revenue forecast points to faster growth. ServiceNow's investor presentation says Armis adds about 1.75 points to the fourth-quarter figure, so growth without the acquisition would be about 16.75%. On the call, Alex Zukin of Wolfe Research told management that "the stock is down pretty meaningfully after market," which he tied to the fourth-quarter guidance.
Quarter | Subscription revenue growth, constant currency | cRPO growth, constant currency | cRPO ($B) |
|---|---|---|---|
Q4 2024 | 21% | 22% | 10.27 |
Q1 2025 | 20% | 22% | 10.31 |
Q2 2025 | 21.5% | 21.5% | 10.92 |
Q3 2025 | 20.5% | 20.5% | 11.35 |
Q4 2025 | 19.5% | 21% | 12.85 |
Q1 2026 | 19% | 21% | 12.64 |
Q2 2026 | 23% | 21.5% | 13.20 |
Q3 2026 | 20.5% | 21% | 13.65 |
Q4 2026 forecast | 21.5% | 18.5% | About 15.2 |
Source: ServiceNow's quarterly results releases, which round growth to the nearest half point. The Q4 2026 cRPO amount is a SaasBuzz calculation from the guided growth rate.
Mastantuono began her explanation with timing.
With respect to cRPO, we saw strong early renewals in Q3 that contributed about half of the beat in Q3.Gina Mastantuono, president and CFO of ServiceNow, on the October 28 earnings call
Those renewals came out of the fourth quarter, she said: "we pulled those deals out of Q4 and into Q3." She named two other drags. "Strong public sector demand is driving higher on-prem mix in Q4," she said, a 25-basis-point headwind to cRPO; self-hosted software is recognized partly upfront, and the 10-Q says that revenue is excluded from RPO. Termination-for-convenience terms will also keep about 50 basis points of year-over-year backlog growth out of fourth-quarter cRPO; the 10-Q defines RPO as deferred revenue plus non-cancellable amounts still to be billed. ServiceNow said in April that some contracts of Armis, the security company it bought for about $7.6 billion, carry such terms.
"cRPO is a very nuanced accounting metric," Mastantuono said, describing it as "a good indicator of next year's revenue" but not a perfect one. The two effects she put numbers on come to about 0.75 points of fourth-quarter cRPO growth, by SaasBuzz's arithmetic, against a 2.5-point slowdown in constant currency from the third quarter. She did not say how much the early renewals take out of the fourth quarter.
Earnings also fell short. Non-GAAP earnings per share of $1.00 were 2 cents below the $1.02 analysts expected, SiliconANGLE reported. Non-GAAP operating income rose 17% to $1,338 million, but net interest swung from $109 million of income a year earlier to a $12 million cost. Interest expense rose to $81 million from $6 million; ServiceNow borrowed $4.0 billion in April to pay part of the Armis price and refinanced the loan with bonds in May.
On a GAAP basis, the operating margin fell to 9.5% from 17%, though it beat the 8% ServiceNow had guided, as amortization of acquired intangible assets rose to $198 million from $33 million, stock-based compensation to $633 million from $492 million and severance to $87 million from $24 million. The 10-Q says ServiceNow "streamlined certain functions" as a strategy "to optimize our workforce through AI-driven efficiencies," cutting some roles while still hiring in key areas. The non-GAAP subscription gross margin slipped to 80% from 83%; the 10-Q points to growing use of third-party cloud services.
The selloff reached other software makers. Salesforce (NYSE: CRM) fell 4%, Palo Alto Networks 1.8%, Atlassian 6% and Zscaler 1.1%, and at least 12 brokerages lowered their price targets on ServiceNow, Reuters reported.
1,602 fewer employees in a quarter
ServiceNow had 28,855 employees at the end of September, down 1,602, or 5.3%, from 30,457 at the end of June, according to the headcount slide in its investor presentation. Every department shrank, led by sales and marketing, down 541, and research and development, down 511. Headcount is 1.1% below the end of 2025 and 3% above a year earlier.
Mastantuono said on the call that ServiceNow's internal use of AI "is now generating more than $1 billion in annualized value" and that its "efficiency gains means that we're able to not hire as many people," according to the transcript. McDermott said "our ultimate headcount has actually slightly declined, which is a gorgeous situation," and later called the headcount "steady."
The forecast against the old one
ServiceNow raised its full-year subscription revenue forecast to $15,780 million to $15,790 million. The midpoint, $15,785 million, is $15 million above July's and $235 million above January's; growth is unchanged since July at 22.5%, or 21% in constant currency. The free cash flow margin target is back at the 36% set in January, after a cut to 35% in April, when the company said Armis would cost the year about 2 points. Mastantuono tied the increase to lower capital spending, $91 million in the quarter against $235 million a year earlier. The non-GAAP targets for subscription gross margin and operating margin, 81% and 31.5%, held.
The fourth-quarter range of $4,245 million to $4,255 million implies subscription revenue growth of about 22.6% at the midpoint, from $3,466 million a year earlier, or 21.5% in constant currency, faster than the third quarter's 20.5%. Acquisitions count toward that: in January ServiceNow said Moveworks would add about 1 point to 2026 subscription revenue growth, and in April that Armis would add about 1.25 points. The range is for subscription revenue only; ServiceNow does not forecast total revenue.
Mastantuono said the only reason the full third-quarter beat did not carry through to the year was a change in how some large AI deals are sold. ServiceNow now includes deployment help, and that value is booked as professional services rather than subscription revenue until the contracts renew. She put the effect at about 25 basis points in the third quarter and about 50 in the fourth.
What to watch
The test of management's explanation is whether constant-currency cRPO growth gets back above 20%, where it was in every quarter from the third quarter of 2023 to the third quarter of 2026. Mastantuono said the deployment value returns to subscription revenue when those contracts renew, and the $1.7 billion AI target runs to December 31. Chairman and CEO Bill McDermott told analysts, "The business has never been in better shape than it is right now." Mastantuono speaks next at the Wells Fargo TMT Summit on December 8 and the Barclays Global Technology Conference on December 9, the company said.
